Defence Major capital equipment projects

Major capital equipment projects

Nicole
Brangwin

The current Budget estimates that costs associated with the
Defence Capability Plan (DCP 09) will be $277.9 million
for the 2010–11 financial year.[1] This is a significant decrease from the
previous year’s estimate of $1433.7 million for the
2010–11 financial year.[2] The Opposition has argued that this signifies the
deferral of around $1.2 billion in defence projects.[3] The Government countered
that the decreased figure indicate ‘money was transferred to
the Defence Materiel Organisation (DMO) for spending on approved
projects’.[4]
However, this transfer of funds is not obvious from the budget
figures.

This year’s budget shows that there are 15 significant DCP
09 projects in development for second pass approval.[5] Three of these projects
have been deferred from the previous year’s budget and
carried over into this year’s budget:

Absent from the list of projects in development for second pass
approval is Project Land 121—Overlander (Phase 4),
which has received first pass approval but is ‘seeking
further guidance from Government prior to second pass
approval.[7]
This poses the question of whether the Department is seeking
financial guidance or a change of strategy.

The year in which second pass approval might be expected for
these projects is imprecise as the indicative years for approval
now span two financial years instead of one.[8] Brendan Nicholson of The
Australian suggests:

... the government has given itself wriggle
room by changing the timing of projects. Last year, equipment
purchases were allocated to specific years for approval, but they
are now placed in two-or-three-year brackets, making it harder for
those scrutinising Defence spending to hold it to account.[9]

By extending the bracketed period for decision, there is the
potential for reprogramming to be obscured, which may impact on
defence industry planning.

Risk

As the Defence Industry & Aerospace Report (DIAR) points
out:

... the seven largest projects within the
‘Top 30’ list are forecast to constitute 67.9% of the
DMO's total forecast acquisition expenditure for 2010/11’ (as
predicated on realisation of the forecast outcome for 2009/10)...
The budget papers further note the high-level dependence upon a
small number of projects raises a significant risk to the DMO in
achieving its overall acquisition budget expenditure projections,
should one of these projects experience a substantially technical
difficulty or related schedule delay.[10]

One significant project that appears to be absent from the
coming financial year’s estimates is
SEA 1000–future submarine.

SEA 1000—future submarine

The Defence White Paper 2009 (DWP 09) specified that by
2030 the existing fleet of six Collins Class submarines will be
replaced by a ‘more superior class’ of 12
submarines.[11] The
estimated potential cost for this ambitious project was not
disclosed in the DWP 09 or the 2009–10 Defence
Budget.

When the Defence Capability Plan (DCP 09) was released in
June 2009, estimated costs for project SEA 1000 were not
specifically identified. The DCP 09 simply lists the
Acquisition Category (ACAT) as ‘Level 1 very high’,
which means the project is expected to exceed
$1500 million.[12]

The DCP states that project SEA 1000:

... seeks to acquire an increased and enhanced
submarine capability that will provide the ADF with a potent
submarine capability beyond the planned withdrawal date of the
Collins Class submarines. Phase 1 will commence the design of the
new capability.

SEA 1000 will provide Australia with a new and
more potent defence capability with greater range, longer patrol
endurance and increased capability compared to the Collins Class.
Key capabilities will be in the areas of anti-submarine warfare;
anti-surface warfare; strike; intelligence, surveillance and
reconnaissance; electronic warfare; mine warfare; and support to
both Special Forces and advance force operations.[13]

Construction of the future submarine fleet is
expected to commence in 2016.[14]

Current funding allocation?

Project SEA 1000 commenced a phased
acquisition process in August 2009 with the Government’s
announcement that Requests for Tender would be sought by the
Department of Defence for a domestic submarine design
study.[15] In
November 2009, it was announced that the (US) RAND Corporation had
won the contract with the study report expected to be completed by
February 2010.[16]
To date, no further announcements have been made.

So far, $15.4 million has been allocated
to project SEA 1000 for early studies and scoping activities.
The project is not scheduled to receive second pass approval until
2016 and due to a number of design decisions still to be made,
further costs are yet to be determined.[17]

While the Government remains hesitant at this
stage to estimate an overall cost for SEA 1000, Sean Costello
and Andrew Davies from the Australian Strategic Policy Institute
(ASPI) forecast that costs could reach around $36 billion (in
2009 dollars) based on historical trends.[18] In a November 2009 speech, the
Minister for Defence Materiel and Science, Greg Combet,
acknowledged that commentators are suggesting the cost for funding
the future submarine project might exceed $30 billion. While
he would not confirm this figure, he stated that ‘these
estimates give some idea of the potential scale of the project
depending on what choices are made’.[19]

The Defence Portfolio Budget Statements
2010–11 did not indicate any specific funding for
project SEA 1000 other than to note the project is in
development and scheduled for first pass approval sometime between
2009–10 and 2010–11.[20] The Opposition and defence analysts cautioned the
Government that if significant funds to the future submarine
project were not committed in the 2010–11 Budget, the project
would slip before it has begun.[21]

ASPI predicts that the acquisition strategy for
SEA 1000 will take some time to develop due to the level of
complexity involved in the project.[22] Additionally:

... in order to have a boat in the water for
sea trials by 2022 and in service by 2025, Australia has barely
seven years in which to determine the design and capability of the
Collins Class replacement.[23]

In terms of funding, the Minister for Defence, John Faulkner,
stated:

... [a]dditional funding will continue to be
made available, step by step, as the Government is satisfied that
the necessary preliminary work for each stage of this large and
complex undertaking has been done.[24]

Given the necessary timeframe to significantly progress project
SEA 1000, funding to properly maintain the existing fleet of
Collins Class submarines is all the more crucial.

Submarine unit ready days

While $352 million has been allocated to the sustainment of
the Collins Class submarine for the next financial year, the number
of days the Collins Class submarine fleet is expected to be
available for tasking has been rendered indistinguishable in the
current budget.[25]
The submarine ‘unit ready days’, details of which are
traditionally listed separately from other naval platforms, have
been placed in the same category as the Royal Australian
Navy’s frigates and identified as ‘major
combatants’.[26] This might be indicative of the number of submarines
undergoing repairs, planned maintenance and system improvements. As
Defence reported earlier this year in a response to a Question on
Notice, only one submarine (HMAS Farncomb) was fully
operational for the period 1 July to 30 September 2009.

[5]. The term ‘second pass
approval’ denotes that ‘the Government agrees to fund
the acquisition of a specific capability system with a well-defined
budget and schedule and to allocate future provision for through
life support costs’—Department of Defence, Defence
Capability Development Manual 2006, Commonwealth of Australia,
Canberra, 2006, p. 30, viewed 17 May 2010, http://www.defence.gov.au/publications/dcdm.pdf

[7]. The term ‘first pass approval’
denotes that the ‘Government considers alternatives and
approves a capability development option(s) to proceed to more
detailed analysis and costing, with a view to subsequent approval
of a specific capability’—Defence Capability
Development Manual 2006, op. cit., pp. 29, 77.

[12]. The phased expenditure bands used in previous DCPs
were replaced in the 2009 DCP with Acquisition Category (ACAT)
scores, which designate the project’s level of complexity.
SEA 1000 is designated ACAT 1 which is described as ‘major
capital equipment acquisitions that are normally the ADF’s
most strategically significant. They are characterised by extensive
project and schedule management complexity and very high level of
technical difficulty, operating, support and commercial
arrangements’. Cited in Defence Materiel Organisation (DMO)
and the Capability Development Group, Defence Capability Plan
(public version), DMO, Canberra, 2009, pp. 6–7, 172,
viewed 17 May 2010, http://dpl/Books/2009/DeptDefence_DefenceCapabilityPlan2009.pdf